Americans get 'Big Beautiful Bill' tax cuts

President Donald Trump has signed into law the One, Big Beautiful Act (OBBA), and for taxpayers in high-tax states like California and New York, it may offer long-awaited relief — at least for a few years.

The law temporarily raises the cap on the federal deduction for state and local taxes — known as the SALT deduction — from $10,000 to $40,000 beginning in 2026.

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The cap will increase slightly each year with inflation through 2029, reaching $41,616. Starting in 2030, however, the cap snaps back to $10,000 unless Congress takes further action.

Passage of the One Big Beautiful Bill Act means tax relief for millions of Americans.

Photo by Igor Omilaev on Unsplash

Why the State and Local Tax (SALT) deduction cap matters

The $10,000 SALT cap was introduced by the 2017 Tax Cuts and Jobs Act (TCJA), limiting the amount taxpayers could deduct for property taxes and state income or sales taxes.

There was no cap prior to the TCJA. The restriction hit hardest in states with high property values and income taxes, reducing deductions for many upper-middle-class and affluent households.

Under the OBBA, taxpayers with modified adjusted gross income (MAGI) over $500,000 in 2025 will see the expanded deduction phased down.

Specifically, their SALT deduction will be reduced by 30% of the amount by which their MAGI exceeds that threshold — but never below the original $10,000 limit. That $500,000 threshold will also be adjusted for inflation through 2029.

Congress debated SALT workarounds — then let them stand

Earlier versions of the OBBA included provisions to limit common SALT workarounds — such as state passthrough entity taxes (PTETs) — which business owners often use to sidestep the cap.

One proposal would have barred specified service trades or businesses (SSTBs) from deducting these taxes. Another would have capped the PTET deduction based on a formula tied to a taxpayer’s unused SALT limit.

But those measures didn’t make it into the final law.

“The adopted version of the bill merely increases the SALT cap and does not attempt to limit or address the various workarounds,” wrote Alistair Nevius in the Journal of Accountancy. The American Institute of CPAs had pushed to preserve PTET usage — and, for now, they’ve succeeded.

Will more taxpayers itemize again?

It’s too early to say exactly how many taxpayers will benefit from the higher SALT cap. In 2017 — before the TCJA took effect — more than 46 million tax returns included itemized deductions, representing about 30% to 32% of all filers.

But after the law nearly doubled the standard deduction and imposed the $10,000 SALT cap, the number of itemizers dropped sharply — down to roughly 17 to 18 million in 2018, and just 15 million by 2022. That’s fewer than 10% of all returns.

With the cap now temporarily rising to $40,000 and the standard deduction made permanent, that calculus may shift again.

The number of taxpayers who choose to itemize is expected to increase — particularly those in high-cost states and those who make large charitable donations, both of whom are more likely to have deductible expenses that exceed the standard deduction threshold.

Permanent standard deduction boost — and a bonus for seniors

Alongside the SALT relief, the OBBA also makes the TCJA’s expanded standard deduction permanent. Starting in 2025, the new baseline amounts will be:

$15,750 for single filers
$23,625 for heads of household
$31,500 for married couples filing jointly

All adjusted annually for inflation beginning in 2026.

New deduction offers modest tax break for seniors — but comes with strings

Taxpayers age 65 and older will see a small but potentially meaningful benefit under the OBBA: a new, temporary $6,000 deduction aimed at easing their tax burden.

But before you count on pocketing that full amount, it's important to understand the fine print.

According to Kelly Phillips Erb, the managing shareholder of The Erb Law Firm — and widely known as the “Taxgirl” — this new provision is a deduction, not an exclusion, and not everyone will qualify.

“This is an age-based deduction,” Erb said in a recent Facebook post. “You don’t need to be receiving Social Security to claim it — you just need to be at least 65. That means if you've deferred your Social Security benefits to age 70, you're still eligible.”

On the other hand, younger taxpayers who are receiving Social Security retirement benefits or are on Social Security Disability Insurance (SSDI) do not qualify unless they’ve reached age 65.

Key features of the senior deduction

Here’s how the new deduction works:

Amount: Up to $6,000 per person.
Eligibility: You must be 65 or older and have a valid Social Security number.
Income Phaseouts: The deduction begins to phase out at $150,000 for joint filers ($75,000 for all others) and disappears entirely once income reaches $350,000 for joint filers ($175,000 for others).
Refundability: It’s not refundable — meaning if your income is low enough that the deduction exceeds your tax liability, you don’t get money back.
Filing Status: Available whether or not you itemize.
Reporting Requirements: You must still report your Social Security income if you're otherwise required to file.

And importantly, this deduction is temporary. It’s in effect for tax years 2025 through 2028 — unless extended by future legislation.

What It Doesn’t Do

Some confusion has already cropped up online, with questions about whether the new deduction eliminates taxes on Social Security benefits. The answer is no — at least not across the board.

“This doesn’t mean Social Security benefits are now tax-free for everyone,” Erb said. “According to the White House, before this deduction, about 64% of Social Security beneficiaries paid no tax on their benefits. With the new deduction, that number rises to 88%.”

So yes, more retirees will avoid taxes on their benefits — but high-income beneficiaries will still see some or all of their Social Security taxed.

Alongside changes to the SALT deduction, standard deduction, and the senior bonus deduction the One, Big Beautiful Act (OBBA) delivers several key updates to the tax code that will affect families, business owners, and estate planners for years to come.

Bigger — and indexed — child tax credit

Starting in 2025, the nonrefundable portion of the child tax credit increases to $2,200 per child and will be adjusted for inflation in future years. The law also makes permanent the refundable portion of the credit — currently $1,400 — and ensures that it, too, will rise with inflation.

Importantly, the income thresholds at which the credit begins to phase out remain unchanged: $200,000 for single filers and $400,000 for joint filers. Those levels, which had been temporarily increased under the 2017 Tax Cuts and Jobs Act, are now permanent.

In addition, the bill preserves the $500 nonrefundable credit for each qualifying dependent who isn’t a child — such as elderly parents or college-age children — giving some relief to so-called “sandwich generation” households caring for multiple generations.

Section 199A deduction made permanent — with a new floor

For small business owners and the self-employed, the law brings welcome news: The popular 20% qualified business income (QBI) deduction under Section 199A is now permanent.

While the House version of the bill would have raised the deduction to 23%, the final legislation retains the existing 20% rate. However, it does expand eligibility by increasing the income thresholds where the deduction begins to phase out for specified service trades or businesses (SSTBs), such as law, medicine, and financial services.

For non-joint filers, the phase-in threshold increases from $50,000 to $75,000. For joint filers, it rises from $100,000 to $150,000 — a meaningful change for those who were previously phased out too quickly.

In a further nod to Main Street businesses, the bill introduces a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income from one or more active trades or businesses where they materially participate.

Estate and gift tax exemption doubles — permanently

For those concerned with legacy and estate planning, OBBA also delivers a major change. Starting in 2026, the estate and lifetime gift tax exemption will increase to $15 million for individuals — or $30 million for married couples filing jointly — and will be indexed for inflation in subsequent years.

That’s a significant shift from the current exemption levels, which are scheduled to revert to roughly $6 million per person in 2026 under the pre-TCJA rules. With this change, high-net-worth individuals have a much larger window to transfer wealth tax-efficiently — assuming the new exemption remains in place long-term.